Important factors to consider when investing in real estate

As more people seek to grow their wealth, they are constantly seeking for safe places where they can do so even if it means, saving and investing over time. One of the most common areas where most investors look to put their money in is the real estate. 

During a Je Una Mjengo session organised by the Architectural Association of Kenya, various experts in the real estate sector came together to advice Kenyans on what to look out for and the opportunities available in the real estate. 

 “There are different types of investments that one can make. You should ask yourself whether you are investing for a brand, for returns, shelter or meet a need,” explains Robyn Emerson, president of Women in Real Estate (Wire) and co-author of the book Building in Kenya. 

 “You should also look at the source of financing and if you are doing it on your own, it might take more time and planning.

How are you going to get the money and what impact will your project have on your family or quality of life? 

Have you saved enough money, is your family ready for the long haul of this.

Am I going to be making this investment from my high capital, something maybe from pension and long term investments or using mortgages,” she expounds. 

How you acquire the property should also be something to consider and you should carefully weigh the pros and cons of buying or building it.

“Get some analysis on what’s feasible and what’s not , what are the infrastructure requirements for you to carry out this project, look at when a necessary infrastructure will be available and how you are going to off load the project.

What’s the market saying about the kind of project that you have envisioned, what are some of the adjustments that you may need to make in order to receive the returns,” she says. 

Type of use

In addition, Robyn advices investors to check on the best financial model for the investment and whether they should seek professional advice on the financial model to take.

“When taking a mortgage, ask yourself whether you have a secure job that can carry that debt load.

Buying may seem easy at first, but it definitely takes something in the end,” she adds.

Managing Director and CEO of Axis Real Estate, Gikonyo Gitonga, advises those seeking to invest to categorise their development in terms of type of use of the property as the end game should be returns.

“There are various types of investments that are available to investors. First, there is investing in commercial property, which are offices, retail, as well as commercial.

When it comes to residential units, either single or multi dwelling units, the yields are amongst the lowest and are usually five or six per cent, but when it comes to industrial, the yields go a bit higher maybe between six and eight per cent,” he explains.

Gikonyo adds that investors looking for rentals and for commercial will gain at least eight to nine per cent  while rental for retail will go up to between 10 and 12 per cent.

“You also have to look at whether you are investing as an individual or a group of people.

There are certain investments that are more suitable for institutional investments and there are some that are suitable for individuals.

You can also make investments in hotels, serviced or furnished apartments or even student accommodation,“ he notes. 

Gikonyo notes that in the residential market, one should look at getting investments of about 20 to 25 per cent per annum.

“The yields are low and most investors invest for sale although there are others who do so for rent.

So you have to know whether you want to invest in the low income market, affordable or high end,” he says. 

Before investing, one should look at the infrastructure in the area. For instance, looking at road developments where certain roads show more development, such as the Northern Bypass or Thika Superhighway.  

Gikonyo observes that in the past few years, more investments have been made in mixed used developments.

Gikonyo observes that though high street retail yields are currently high, malls are struggling due to low tenants, but some tenants, such as supermarkets can increase gains.

He also notes that the industrial sub-sector is the best performing in the market, because of warehousing  and logistics.

“The demand for warehousing has grown over two or three years so if you want to get the best returns, these are the best investments,” he advises. 

Emotional attachment

He gives a few tips on how to look for an investment in the rental sector. “What property do you want to buy is it a villa or in a gated community? Will you use it for yourself or you are looking at making the returns.

If you are looking for returns, you will look at whether the property is in a good neighbourhood that can be profitable to you in future,” he says.

When buying a property , Gikonyo advises investors to always have at the back of their mind that one day, they will want to sell it.

“Do not get too emotionally attached to it because one day you might want to sell it.

People will sometimes invest property in a particular area because its close to where they stay at the moment , or their children go to school nearby, but over time, those considerations become less important,” explains Gikonyo. 

The pandemic has made this reality become more apparent. When it comes to residential property, the low income property has also grown in demand as they are getting good returns in renting.

“If you invest in the low income areas, one thing is that you are going to be sure of rent.

The default rate for people who are paying rent in such areas is lesser than when you are investing in the middle or high income areas,” he offers. 

While the middle class is increasing because of the so called middle class, Gikonyo is warning  of it becoming a less profitable investment due to their need to own property.  

It is also less profitable building for the upper income class. “These people can afford to live in their own houses and after the pandemic, a lot of expatriates left the country, so the demand for such houses has gone down.

However, there are investors from the diaspora who are seeking to invest back home, hence one can tap on this market,” he says. 

Another investment to look at is creating rural homes or holiday homes. “As people become older, they want to get an attachment to their rural home and people are starting to think that they want to have a little shamba where they can do some farming. The other trend is where you are part of a chama or housing cooperative. That’s another way to invest,” he says in conclusion.